With the arrival of a new bid, stock markets often brace for additional offers, and this trend has emerged with Rightmove, the prominent property market portal now attracting significant attention.

The announcement of a prospective bid for Rightmove from Rea Group, a leading Australian property entity, triggered a surge in “buy” orders from City investors eager to capitalize. As the week began, Rightmove’s shares soared by over 25%, reaching 708p and valuing the firm at approximately £5.6 billion.

The possibility of a takeover quickly became a topic of interest in financial circles. Sean Kealy, an analyst at Panmure Liberum, indicated that shareholders in Rightmove, a member of the FTSE 100, should anticipate a share premium of up to 60% due to the company’s stronghold in the UK market. Alastair Reid from Investec remarked that the company might present an “enticing investment opportunity” for prospective buyers, pointing to a possible easing in interest rates and the fruits of recent investments amid fears about CoStar’s market penetration being overblown.

The reference to CoStar is noteworthy. Rightmove’s stock has lagged due to concerns about heightened competition from OnTheMarket, which CoStar acquired for £99 million last year. Kealy mentioned that this acquisition has significantly affected Rightmove’s valuation, leading to its shares being priced lower than those of its European counterparts.

The interest from Rea ignited speculation that the concerns about CoStar’s impact may have been exaggerated. Rea has already encountered disruptions from CoStar in the U.S. market, with analysts from Jefferies suggesting that “Rea’s actions seem to indicate it isn’t overly worried about the competitive atmosphere in the UK.”

Based in Melbourne, Rea Group has engaged financial advisors to explore cross-border acquisitions, viewing Rightmove as a “transformational opportunity” to enhance its global footprint. Rea is predominantly owned by News Corp, which holds a 61% stake and stands as the largest property listing entity in Australia, employing 3,000 individuals across 16 brands. It is listed on the Australian Stock Exchange with a market capitalization nearing £15 billion.

Conversely, Rightmove’s stock has remained stagnant while other FTSE 100 firms have seen gains over the past year, making it an attractive target for external parties. Private equity firms have increasingly sought opportunities in property platforms, with notable deals including EQT’s acquisition of PropertyGuru Group for $1.1 billion in August and Cinven’s majority stake purchase in Spain’s Idealista in June.

Rea acknowledged it is contemplating a possible cash-and-shares bid for Rightmove, following reports from the Australian Financial Review that it has appointed Deutsche Bank as its financial advisor for significant transactions.

In a statement to the Australian Stock Exchange, Rea remarked: “Rea identifies clear parallels with Rightmove and sees a transformational opportunity to leverage its leading capabilities to create a diversified digital property firm with leading positions in Australia and the UK.”

City analysts remain cautious. Kealy commented, “There are typically limited cross-border synergies in classifieds, with variations in each market necessitating different technologies and marketing approaches to maintain relationships with agents and dealers. The justification for the acquisition isn’t immediately obvious, aside from opportunistic intent.”

Jefferies noted that Rightmove’s business model lacks significant cross-border synergies, asserting that Rea would need to provide strategic insights to realize value from the investment.

Meanwhile, Rightmove’s outlook as an independent entity appears to be brightening, buoyed by a recent rate cut from the Bank of England and opportunities for revenue growth under the leadership of CEO Johan Svanstrom, who took on the role in February 2023.

Rightmove’s estate agents have experienced a 19% surge in buyer inquiries since the interest rates dropped on August 1. Svanstrom has pledged to expand new revenue channels, including mortgage services and commercial real estate, over the next five years.

Kealy remarked, “While a larger entity could potentially enhance investment in Rightmove’s emerging strategic areas, Rightmove has the capacity to do this independently using the cash allocated for share buybacks.”

Rightmove has been conducting share buybacks at an average cost of £150 million annually, but Roddy Davidson at Shore Capital cautioned that the company now faces obstacles in developing new revenue sources and achieving price increases.

Jefferies also expressed that Rea could provide the necessary strategic insights for expanding Rightmove’s non-core revenue streams, considering Rea’s experience in the mortgage and commercial real estate fields.

As of now, Rea has yet to disclose the terms of its potential bid and has until September 30 to submit a formal offer or withdraw from the bidding. Analysts suggest that Rightmove’s shareholders might prefer a cash deal over equity in the Australian stock exchange, should an offer be made.